Woods Appraisal, LLC can help you remove your Private Mortgage InsuranceIt's largely known that a 20% down payment is the standard when buying a house. The lender's only exposure is typically just the remainder between the home value and the amount remaining on the loan, so the 20% provides a nice cushion against the charges of foreclosure, selling the home again, and regular value changes on the chance that a borrower doesn't pay.
The market was accepting down payments dropping to 10, 5 and frequently 0 percent in the peak of last decade's mortgage boom. How does a lender endure the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower doesn't pay on the loan and the value of the home is less than the balance of the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and many times isn't even tax deductible. It's profitable for the lender because they collect the money, and they are covered if the borrower is unable to pay, unlike a piggyback loan where the lender consumes all the damages.
How can a home owner keep from paying PMI?The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Keen homeowners can get off the hook a little early. The law pledges that, at the request of the home owner, the PMI must be released when the principal amount reaches only 80 percent.
It can take a significant number of years to arrive at the point where the principal is just 80% of the original amount of the loan, so it's essential to know how your Alabama home has grown in value. After all, any appreciation you've obtained over time counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Your neighborhood may not follow national trends and/or your home could have acquired equity before things cooled off. So even when nationwide trends signify a reduction in home values, you should understand that real estate is local.
The toughest thing for most people to determine is whether their home equity has exceeded the 20% point. A certified, Alabama licensed real estate appraiser can surely help. It's an appraiser's job to keep up with the market dynamics of their area. At Woods Appraisal, LLC, we know when property values have risen or declined. We're masters at determining value trends in Fort Payne, De Kalb County, and surrounding areas. When faced with data from an appraiser, the mortgage company will usually remove the PMI with little anxiety. At that time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: